Emaar Properties says it will see earnings rise this year as it hands over property in Burj Khalifa. The country's largest property developer, which on Monday opened the 828-metre-high tower that was formerly known as Burj Dubai, changed its accounting process in April last year to book revenue only when a property is handed over.
The company had swung back into profit in the third quarter of last year due to the handover of property in Dubai and better returns on foreign ventures. "As Emaar recognises revenue and profits on delivery of the project, the revenue relating to the units sold in Burj Khalifa will be recognised in 2010 on delivery ? this will positively impact the results of the company due to the large size of the project," the company said in a statement to the Dubai Financial Market yesterday.
It added that revenue from its joint venture with the Italian luxury firm Georgio Armani to develop hotels would also boost earnings this year. The bright outlook comes after more than a year of turmoil in the property sector, where prices have fallen by as much as 50 per cent since their peak in the third quarter of 2008. UBS predicts a further decline this year of about 30 per cent. Based on an average of estimates from the three investment banks EFG Hermes, Shuaa Capital and Securities and Investment Company, Emaar will book Dh761.3 million (US$207.2m) in net profit for the fourth quarter of last year.
Shuaa Capital said revenue from Emaar's malls and hotels in the final quarter were expected to improve significantly as cooler weather during the recent holiday period would be of benefit to mall sales and hotel occupancy rates. Chet Riley, an analyst at Nomura Securities, did not expect Emaar to book any further write-downs for the quarter, but said there might be some impairment from its stake in Amlak Finance, the mortgage lender.
Emaar recorded a net loss of Dh1.29 billion in the second quarter of last year, mostly as a result of a write-down on its business in the US, John Laing Homes, which filed for bankruptcy protection last February. Nomura forecasts gross revenues for this year of Dh11.8bn, with an estimated Dh1.3bn of net cash generated directly from the handover of units at Burj Khalifa. "We expect this cash will come into the business directly from the final instalments from the Burj," Mr Riley said.
Mohamed Alabbar, the chairman of Emaar, told The National last week that the company had already earned a 10 per cent profit on the world's tallest building after selling 90 per cent of the units. The tower cost Dh5.51bn to build. "This year will be pretty much a focus on the Burj delivery," said Martin Kohlhase, an analyst at Moody's Investors Service. "With the handover they will record a profit, given the change in the accounting method. That will be the key scene during the next months.
"The best time to have sold the remaining 10 per cent in the Burj would have been two years ago, when prices were reaching a peak. But maybe it is time to sit on it now and rent it out." Emaar's diversification abroad, as well as its investments in retail and healthcare facilities will also help keep profits stable this year, added Mr Kohlhase. But accessing funds will continue to be a challenge this year for the country's property sector, said Ayman el Saheb, the head of operations at Darahem Financial Brokerage in Dubai.